ADV-2: How much can you learn about your competitors now?

Jun 5, 2011 @ 12:01 am

By Dan Jamieson

In addition to satisfying regulators, the wealth of information contained in revised ADV forms may be a gold mine of competitive intelligence.

Because the new forms, which most SEC-registered investment advisers had to complete by the end of March, were filed electronically, for the first time in a decade, much of the detailed ADV information is now available publicly.

Since 2001, RIAs registered with the Securities and Exchange Commission have not had to file ADV Part 2 forms, said Ted Siedle, founder of Benchmark Financial Services Inc., a pension fund consultant who investigates money managers.

“If you put Part 2 in your file, it was considered filed,” Mr. Siedle said.

New clients had to be provided a copy and could ask for an update, but the old Part 2 wasn't a public document.

“For 10 years, it was a huge loophole,” Mr. Siedle said.

The revised ADV Part 2 requires detailed, plain-English disclosures about the fees that advisers charge, policies on discounting, whether advisers gets commissions, the types of accounts handled, the research methods and investment strategies used, risks, disciplinary information, and other business interests or affiliations that create possible conflicts.


That is a long list of potentially juicy information that competing advisers and others might want to mine. Now they can.

“All the SEC-registered investment adviser firms have the new ADVs [online], so you can start using them for a competitive advantage to see what other advisers are doing,” said Bryan Sadoff, an investment adviser at Sadoff Investment Management LLC, which manages about $600 million.

“I can see if [a competitor uses] loaded mutual funds or if they have a prior [disciplinary] record. You can also see where they custody and what their fees are,” Mr. Sadoff said.

“If a client says, "I'm talking to this [other adviser] as well,' just being able to understand what the competition is doing helps,” said Frank Reilly, president of Reilly Financial Advisors LLC, with $345 million under management.

“If you do know where your offering is better, that's certainly something you can use,” he said.

ADV data perhaps are even more useful for keeping your own business competitive, Mr. Reilly said.

“You can look at a number of ADVs and see who is doing pricing in a different way, or offering a new service we might want to incorporate in our business,” he said.

Especially for the most successful firms in the area, “you can see how they became successful and what they do,” Mr. Reilly said.

“It is to our competitive advantage to have that [full ADV] disclosure, because our fees are low and we have nothing to hide,” said Richard Ferri, founder and chief executive of Portfolio Solutions LLC, which manages nearly $1 billion using index funds and charges just 25 basis points.

He predicts that research firms eventually will be able to rank advisers based on their fee schedules, as they do now, based on assets.

Disclosures of conflicts also could affect some advisers, Mr. Ferri said. Some firms receive data and other services that are paid for by third parties, he said, and all this must be disclosed on their ADVs.

Mr. Ferri said that he doesn't have any such side arrangements.

The greater transparency has some advisers worried.

Compliance consultants said that some firms held up filing their new ADVs until the March 31 deadline in order to avoid giving competitors a head start on scouting out the information.

“Competitors do read them,” said Peter Maftieu, principal at Sound Compliance Services, a consulting firm.

A few years ago, he had one adviser client who voluntarily filed an electronic Part 2.”He called me three days later, saying it needed to be taken down,” Mr. Maftieu said.

A competitor had used the information to convince a prospective client that Mr. Maftieu's adviser wasn't qualified.

The adviser was a former institutional broker with a major firm and received his certified financial planning designation upon entering the retail business.


RIA firms soon will disclose more information about staff members who work with clients, including backgrounds and disciplinary information.

This disclosure, contained in the so-called brochure supplements, must be given to new clients by July 31 if an RIA firm has a fiscal year that ended between December and April.

“I would be worried about someone saying, "Let's find out who the Winans people are and raid his shop,'” said Ken Winans, president and founder of Winans International, which manages $110 million.

Still, he, like most other advisers, likes the idea of having access to the full ADV online, especially be-cause of the transparency.

“We've seen for a long time that when you hand out a marketing package, and it has a big, bulky ADV in it, clients lose it,” Mr. Winans said. “We're very happy it's online now.”

E-mail Dan Jamieson at


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